|TT’s challenging economic space |
Thursday, January 12 2017
The New Year finds us having to confront the many economic challenges we face which require an objective and rational approach grounded in logic and consistent policy decisions. There are many readers who are very well aware of a number of paradoxes in the economic landscape of our country.
The first paradox is the issue of increasing wages but without conversation about a corresponding increase in productivity.
Secondly, there is the paradox of increasing the budget for national defense, to the point where it is allocated the largest share of the national budget, but without the expected fall in the levels of crime. In the 2017 list of countries with the highest levels of crime globally, compiled by the Gazette Review, use was made of the following factors - United Nations Office on Drugs and Crime statistical reports, national crime index reports, reports on national corruption, and reports of non-government paramilitary actions to determine each country’s rank. Trinidad and Tobago was ranked seventh in the world, a top ten finish.
The third paradox on our list is the emphasis on educating the population but with a lack of opportunities for educated persons. In fact, there appears to be increased underemployment pervading the society; a review of the returning scholars program is a case in point.
A fourth paradox is that we are increasing national debt at a time of falling GDP, but we have falling investment. The increased debt is to fund government’s recurrent expenditure - not productive activity.
Paradox number five is the fact that, over the last few decades, we have seen an increase in the food import bill which implies a lack of food security. We tout the need for increased agricultural production and participation yet there is expansion of the conversion of agricultural land to housing and commercial space. To address this particular paradox, we should focus on incentivising agricultural production itself and move away from focusing on meagre subventions to drive food security. Clearly the agricultural sector is in desperate need of re-engineering and should be dealt with in a cohesive manner in order to move toward food security and self-sufficiency.
The sixth paradox can be seen whereby we have higher government expenditure but without a medium or long term economic framework. This situation leaves a lot to be desired and this may reflect in part the lack of effective targeted expenditure.
A seventh paradox is reflected in the years of high government expenditure, especially on transfers and subsidies, unemployment relief and other public assistant programs, which come with the suggestion that there are higher levels of inequality and increased poverty. This means that the pattern of government expenditure may be great politics, but fails to address poverty and inequality. The paradox here is the advocacy for citizens to be less dependent on government while simultaneously creating government programs that result in heavier dependence on the government. Some examples include mortgages with significantly lower interest rates for those who fall within a particular income bracket, HDC housing for people working for under TT$25,000 per month and certain government guarantees that seek to reduce the risks associated with investment. Interestingly, these apparent benefits may even serve as perverse incentives to remain dependent on the government.
For the eight paradox, we look at the increased expenditure on sport with millions provided to a sport company, yet we struggle to win more than one medal in the Olympics. Mediocrity is the norm; no value for money.
Number nine, the paradox of punishing the consumer for purchasing online, but expressing no problem with the huge mark ups that the retail sector imposes on a hapless public, who have little resort given the new tax on online shopping.
The tenth paradox is represented by the strong statements about the need for economic diversification and building the non-energy sector, but, as stated clearly in the budget, the hope for return to growth is based on the rebound of oil prices.
Peter Drucker said that “Nothing is less productive than to make more efficient what should not be done at all”. Concentration on hydrocarbons and heavy dependence here, without investment in alternative energy is a case in point.
An interesting paradox at number eleven is the approval of franchises like Starbucks, DQ, Wendy’s, KFC etc., but complaining about the problem with obesity and the cost to the health sector of the attendant diseases that arise.
A very long paradox at number twelve is the low interest rates coupled with increasing service fees charged by banks to keep our money, which is a disincentive for saving at a time when the country needs desperately to mobilize savings for investment, especially in the non-energy sector where foreign direct invest has very little interest.
The thirteenth paradox is a stagnant population, apparently stuck at 1.3 million people for the last few years according to the CSO, but with an ever-increasing demand for housing, despite having one of the highest owner-occupied dwellings in the world, and an ever-increasing need for schools.
The fourteenth paradox of our time in Trinidad and Tobago is the pressure on our foreign exchange which contrasts with the lack of incentives to stimulate intermediate production as well as purchase of intermediate and final output from local producers. Perhaps we can alleviate pressures on foreign exchange if there were local alternatives. Clear policy objectives are needed.
These are but a few of the paradoxes that we see in our economic space. They come with cost as well as negative consequences which need to be addressed as part of our effort to re-engineer our economy.